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Internet retailers should collect sales tax: It's only fair

Online Sales Taxes.JPG

In this Oct. 18, 2010 file photo, an Amazon.com package is prepared for shipment by a United Parcel Service (UPS) driver in Palo Alto, Calif. States could force Internet retailers to collect sales taxes under a bill that overwhelmingly passed a test vote in the Senate Monday, April 22, 2013.
(The Associated Press)

The U.S. Senate on Monday passed the Marketplace Fairness Act to require e-commerce retailers to collect state and local sales taxes from their customers. Further, it requires states to provide a simple way of doing so. Both New York senators voted for it. The House of Representatives should pass it, too. Here's why.

It's 2013, not 1992. The world has changed.

In 1992 - two years before Amazon.com was founded -- the U.S. Supreme Court ruled in Quill v. North Dakota that a state could not impose a tax on an out-of-state business unless the business had a significant physical presence (or nexus) in the state. The court explicitly said Congress could overrule its decision through legislation.

As the Internet took hold and e-commerce grew, retailers (and their customers) exploited this loophole. Internet sales now amount to $226 billion a year, and, if you believe the estimates, Congress's failure to act is costing states $23 billion a year in sorely needed revenue.

The high court has recognized that "Congress has the power to protect interstate commerce from intolerable or even undesirable burdens." The burden of remitting sales taxes to the 46 states that levy them has been significantly reduced by technology.

It is false to claim Internet sales tax is a new tax burden. Consumers owe sales or use tax on taxable items they buy out of state. Few pay it. In New York, income tax filers can use a chart to estimate their sales and use tax liability. Only 5 percent of filers paid it, amounting to $35 million, according to the state Department of Taxation and Finance.

It's not fair to bricks-and-mortar retailers.

When e-commerce was young, you could argue it needed a helping hand from government to nurture it. We are long past that point. Internet retailers who don't have to collect sales tax enjoy an unfair price advantage over bricks-and-mortar retailers who do.

Small Internet retailers are exempt.

The bill exempts Internet retailers with $1 million in sales or under. So the artisan selling dolls on Etsy or the duffer unloading that faulty three wood on E-Bay won't have to collect sales taxes.

States need the revenue.

New York does not have an estimate of how much it would collect from collecting tax on web sales, but it's more than chump change. Just collecting the tax from retailers who have a nexus to the state -- a call center, warehouse or store here -- added $150 million to state coffers in 2012-13, and $500 million since 2008, according to the state.

The bottom line: If there's going to be a sales tax, then it should be enforced fairly.